Question

Question: Evaluate the main barriers to entry into the copying business.

Answer 1

Barriers to entry are the economic term describing the existence of high start-up costs or other obstacles that prevent new competitors from easily entering an industry or area of business. Barriers to entry benefit existing firms because they protect their revenues and profits.

Common barriers to entry include special tax benefits to existing firms, patents, strong brand identity or customer loyalty, and high customer switching costs. Others include the need for new firms to obtain proper licenses or regulatory clearance before operation.

In the copying business, purchasing materials such as paper and copying supplies in bulk so that their price per unit is lower creates economies of scale. Obtaining these resources in bulk should enable us to lower costs so that we can increase our profits. However, in order to realize the benefits of bulk purchasing, we must first conduct a significant amount of business with our customers, so that we will be able to make use of large quantities of supplies in a short period of time. And competitor has an advantage that they already generate sales volume large enough to make purchasing in bulk, which helps them keep their prices low. Another advantage that competitor has is brand loyalty. Because they have been in business a long time and are located throughout the country, our customers are quite familiar withtheir name and reputation. If customers are satisfied with the service they have received, they may remain loyal to our competitor and see no reason to try us out.